Argument mapping exercise (20%)

Should midsize companies play offense or defense in a downturn?

Despite the roaring stock market and $3 trillion of relief money provided by the U.S. government, 2020 will count as a recession year. While the economy isnt yet back to normal, it is showing signs of recovery.

Recessions are tough for most companies, especially midsize ones. Such companies lack the financial muscle that allows large companies to make brave moves during a recession. For mid-size companies, demand dries up, cash flows are blocked, credit is difficult to come by, and almost every financial metric turns red. What should such firms do during a recession, particularly as they rethink their strategy midway through it?

In a recent research of midsize companies, researchers have found that the natural response is to play defense: Cut costs and preserve the remaining cash to last through the tough phase. The firms that increased investments during the recession showed improvement in return on equity, sales growth, and market values in the recovery phase. Companies that decreased investment showed deterioration on all three counts.

Recessions are inevitably followed by expansions, which typically last longer than the recessions. Recessions are fertile ground for creative destruction and catapulting new winners.

Despite the undeniable adversity, research has found that a CEO must consider recessions as opportunities. For some companies, theyre advantageous anyway. For example, Dollar Tree, Walmart, and Ross stores did very well during the 2008 recession when customers turned toward budget sellers. Similarly, 2020 has been a great year for Amazon.

There are benefits to playing offense during a recession. For example, companies can attract ambitious employees who would thrive in a forward-looking, growth-oriented environment. Talent is not only available at a lower salary but is also more accessible. Its an ideal time to deploy new technologies, whose deployment during a boom phase would slow down the firms profit engine.

A notable example of playing offense during a recession is Samsung. It increased its R&D and marketing expenses and hired the best brand managers during the 2008-2009 financial crisis and emerged as a formidable player in mobile phones market.

Why dont most firms follow this strategy? Because their long-term vision gets fogged up by the day-to-day exigencies: Cancelled contracts, customer defaults, idled capacity, banks refusal to provide additional working capital, and cash-starved suppliers insistence on cash payments instead of extending credit. Firms come under intense pressure from investors to do something about deteriorating financial performance. CEOs cave and announce policies aimed at pleasing stock markets, such as reducing operating costs; shrinking discretionary expenditures like R&D, employee training, and advertising; eliminating frills such as offsite meetings and team-building exercises; delaying brand launches; rationalizing business portfolios; postponing buying assets like plants and machinery; firing contract workers; and lowering head count. They often resort to zero-based budgeting to start questioning every expenditure.

But restructuring and laying off workers might be the worst actions firms can take during recessions. According to Dave Cote of Honeywell, if you lay off employees when youre halfway through a recession, you still have to pay six-month severance pay, which means you only realize those savings after six months. Suppose the recession lasts for another 12 months. In order to gear up production, you need to hire new workers six months ahead of time. So, by firing workers, you really dont save much, but you do destroy morale and incur additional rehiring costs. Workers with low morale are unlikely to offer innovative solutions to problems, which causes product and service quality to suffer and leads to more unsatisfied customers. Notably, finance departments usually do across-the-board cuts, instead of a more judicious rationalizing of investments and saving at least a few future-oriented projects from the universal axe.

1. Refer to the article above (Should midsize companies play offense or defense in a downturn?) and identify the key points for an argument map based on the argument. You must clearly identify four elements (contention, premise, objection and rebuttal). You should identify a minimum of 3 premises to support your contention. (15 marks)

2. Evaluate whether the arguments made in this article is strong or weak, and explain your reasoning using any two of Paul and Elders standards. (5 marks)

	Provide your answers in the spaces provided below
B1	Argument Map Key Points (15 marks)
	Contention:
	Premise 1:
	Premise 2:
	Premise 3:
	Objection:
	Rebuttal:
B2	Evaluate whether the arguments made in this article is strong or weak, and explain your reasoning using any two of Paul and Elders standards (5 marks):